BILL ANALYSIS
AB 1179
Page 1
Date of Hearing: April 1, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 1179 (Jones) - As Introduced: February 27, 2009
SUBJECT : Motor vehicle insurance: damage assessments
SUMMARY : Requires an automobile insurer to provide a vehicular
property damage claimant with a specified notice whenever the
insurer delivers a "damage assessment," as defined.
Specifically, this bill :
1)Defines "damage assessment" as any communication from an
insurer to a claimant intended to convey the cost of a vehicle
repair that has been prepared by an insurer or a person
associated with the insurer that is not licensed pursuant to
the automobile repair dealer law.
2)Defines "written estimate" as a document prepared by a
licensed automobile repair dealer in accordance with specified
Business and Professions Code provisions, and regulations
adopted thereunder, that provides a consumer an estimate of
the price for labor and parts necessary to repair a vehicle.
3)Requires an insurer that provides a claimant with a damage
assessment to do so in writing, and to include a 16-point
notice that states: "THIS DAMAGE ASSESSMENT IS NOT A WRITTEN
ESTIMATE OF REPAIR COSTS. A WRITTEN ESTIMATE OF REPAIR COSTS
CAN ONLY BE PREPARED BY AN AUTOMOTIVE REPAIR DEALER REGISTERED
WITH THE BUREAU OF AUTOMOTIVE REPAIR. THE ACTUAL COSTS OR
REPAIR MAY BE HIGHER THAN THE COSTS CONTAINED IN THIS DAMAGE
ASSESSMNET.
EXISTING LAW:
1)Regulates the conduct of motor vehicle insurers with respect
to damage repair claims, including detailed "Fair Claims
Settlement Practices" regulations adopted by the Insurance
Commissioner.
2)Prohibits an insurer from requiring a claimant to use a
particular body shop for insured repairs.
3)Requires anyone who operates as an "automotive repair dealer"
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to be registered with the Bureau of Automotive Repairs (BAR)
in the Department of Consumer Affairs.
4)Defines "automotive repair dealer" as any person who, for
compensation, engages in the business of repairing or
diagnosing malfunctions of motor vehicles.
5)Requires automotive repair dealers to provide consumers with
written estimates of the costs of labor and parts prior to
performing repair work, and prohibits commencement of the
work until the consumer has authorized it.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose. According to the author, "Consumers do not
understand the difference between an initial, visual only,
inspection of a damaged vehicle that is the source of an
insurer's "damage assessment," and a more comprehensive,
internal examination of a vehicle conducted by a registered
auto repair dealer. Consumers may consequently accept a
settlement with an insurer, based on the incomplete damage
assessment, and only later learn that the repairs will be more
costly. Additionally, consumers generally do not know that
insurers may not lawfully estimate the cost of auto repairs.
This bill is intended to provide consumers with information
which will better inform their insurance decision-making."
2)Support. Supporters of the bill argue that it will help
insurance claimants understand the difference between the
estimate of the cost of repairs prepared by an insurer as
compared to the estimate prepared by the automotive repair
dealer. Because the repair dealers are highly regulated with
respect to the preparation of their estimates, they believe
that their estimates are more comprehensive. In fact, they
argue that insurer-prepared estimates are frequently low, and
frequently miss necessary repairs. Supporters believe that
cursory "eye-ball" estimates by insurers often lead a consumer
to accept a low-ball settlement offer. Further, they believe
that consumers often are unaware that they can re-open a claim
in the event previously undetected damage is discovered.
Supporters argue the bill clarifies the documents consumers
receive, and provides useful information to the claimant.
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3)Disclosure statement. The bill requires that insurers provide
a disclosure statement to a consumer whenever a "damage
assessment" document is provided to the consumer. The
disclosure makes three essential points: 1) that the damage
assessment is not a written estimate of repair costs, 2) that
only a registered automotive repair dealer can prepare a
written estimate, and 3) the actual costs of the repair might
be higher than contained in the written assessment. If the
bill were enacted, each of the 3 points would be correct.
However, it is not clear that current law precludes an insurer
from preparing a written estimate of repair costs.
The Business and Professions Code regulates automotive repair
dealers, and authorizes or requires various responsibilities
that an automotive repair dealer may perform. However, it
does not expressly prohibit other entities from preparing
written estimates of repair costs, unless those entities are
acting as an automotive repair dealer. On the other hand, the
Fair Claims Settlement Practices regulations adopted by the
Insurance Commissioner expressly recognize, and regulate, an
insurer's preparation and use of a written estimate as part of
the claim settlement process.
There is a difference of opinion between the insurance industry
and the repair industry about whether or not insurers'
activity preparing estimates puts them in the business of
automotive repair dealers, thus rendering the estimate illegal
absent registration with the BAR. The repair industry asserts
the activity is illegal. Insurers point out that the
definition of automotive repair dealer requires that the
activity be performed "for compensation" to trigger that law.
They argue that when they prepare estimates or other
activities relating to evaluating vehicle damages, they are
not doing it "for compensation" and therefore that law does
not apply.
4)Opposition. Insurers are opposed to the bill. They assert
that if the only purpose of the definitional provisions is to
change the name of a document that an insurer prepares, it is
meaningless and unnecessary. However, the opponents raise a
more substantive objection to the definitional provision.
They maintain that most policies require payment to a claimant
based on an estimate of the damages. By establishing as a
matter of law that ONLY an automotive repair dealer can
prepare estimates, the insurers are concerned that only those
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numbers could be used to assess the amount necessary to repair
the vehicle. Under current law, the insurer must behave
reasonably, as detailed by the Unfair Claims Practices Act
(Insurance Code Section 790.03) and the Fair Claims Settlement
Practices regulations. However, they are not precluded by
these insurance laws from making their own estimates of those
damages and negotiating with the repair facilities. They
argue that "[t]he effect of AB 1179 is to deny an insurance
company the ability to limit its cost to the amount that is
reasonably necessary to repair a damaged vehicle," thereby
increasing premium costs to policyholders.
Insurers also argue that they routinely inform claimants by
letter that an estimate, whether by the insurer or the repair
shop, is just that - an estimate that may rise upon further
inspection after repairs are commenced.
5)Technical amendment. The author will be offering a technical
amendment in Committee to clarify the language in the
definition of "written estimate." The amendment simply moves
the word "registered on page 2, line 5 so that it precedes the
word "automotive."
REGISTERED SUPPORT / OPPOSITION :
Support
California Autobody Association
Collision Repair Association of California
Consumers for Auto Reliability and Safety
Numerous individual auto body repair companies and shops
Numerous individual employees of auto body repair shops
Opposition
Personal Insurance Federation of California
Association of California Insurance Companies
National Association of Mutual Insurance Companies
Pacific Association of Domestic Insurance Companies
State Farm Insurance Company
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086